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Craig Newman: No hiding place on fund charges


Newman Craig WIM

The FCA could not have made it any clearer. Fund management companies “must” put consumers at the heart of their businesses when it comes to fees.

In its report, clarity of fund charges, it stated: “It is important to make comparing costs as easy as possible. As part of the overall relationship between firms and consumers, firms need to manage the costs with as much tenacity as they produce returns and make the costs they charge clear.”

We were not privy to the draft report while the FCA was carrying out its due diligence on Woodford Investment Management but we recognise we live in a new world where transparency rules. There are no hiding places for fees, commission and charges in the RDR world.

Many fund groups now offer clean share classes – a move that is addressing many of the regulator’s concerns – while the ongoing charge figure has replaced the total expense ratio in a bid to make fees easier to understand.

As a new firm, we are in a prime position to embrace the new world free from the burden of legacy issues. It is why we decided to absorb fund-related expenses into our fund’s annual management charge. This brings our OCF down to meet the AMC rather than increasing the AMC to meet the OCF which simplifies fee matters further.

We are not claiming we have found the panacea to all fund fee ills. There are some fund-related expenses, such as stamp duty and dealing commission, that the industry is unable to include in the OCF. We will continue to work on a more transparent solution to this issue.

The fund’s A share class is intended for those direct investors who are not tempted by the lower fees available to supporting platforms and intermediaries. Some people have raised their eyebrows at our high minimum investment of £150,000 for direct investors. But we are a fund manager tasked with managing client’s money. That is our focus, we are not a fund distributor.

By encouraging investors to use fund platforms and intermediaries, we are able to keep our running costs low and this allows us to keep our fees lower for all our investors.

But this is not the only reason. We also want to encourage investors to use intermediaries, fund platforms and execution-only brokers rather than buying directly from us because we genuinely believe this is in the majority’s best interests. It is through these channels where they will get the expert advice, access to research and analysis they require to make an informed decision.

There are tens of thousands investors needlessly paying more for a fund than they need to because they bought direct from a fund provider in the past. The rhetoric from the FCA suggests that this back book of business will continue to be under scrutiny. There are more appropriate and cost-effective ways to invest and we expect the proportion of investors buying direct to continue to decline.

Craig Newman is chief executive of Woodford Investment Management



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